DIRECT INSITE CORP. AND SUBSIDIARIES

                                      INDEX
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q
                                   (Mark One)

[X]  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)
     OF THE SECURITIES EXCHANGE ACT OF 1934


                  For the quarterly period ended June 30, 2008

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15 (d)
     OF THE  SECURITIES EXCHANGE ACT OF 1934

                 For the transition period from ______ to ______

                          Commission File No. 0 - 20660


                               DIRECT INSITE CORP.
             (Exact name of registrant as specified in its charter)


            Delaware                                       11-2895590
   (State or other jurisdiction of                      (I.R.S. Employer
   incorporation or organization)                      Identification No.)


80 Orville Drive, Bohemia, N.Y.                             11716
(Address of principal executive offices)                  (Zip Code)


        Registrant's telephone number, including area code (631) 873-2900

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                             Yes   X        No

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer, or a smaller reporting company. See
the definitions of "large accelerated filer",  "accelerated filer", and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

      Large accelerated filer [ ]              Accelerated filer [ ]

      Non-accelerated filer [ ]                Smaller reporting company [X]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

The number of shares of $.0001 par value stock outstanding as of August 11, 2008
was: 7,686,022.
<PAGE>

                      DIRECT INSITE CORP. AND SUBSIDIARIES

                                     INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                                                                    Page

<S>  <C>                                                                                                          <C>
     Item 1. Financial Statements.

     Condensed Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and
       December 31, 2007 .................................................................................         3

     Condensed Consolidated Statements of Operations
       For the Three and Six Months Ended June 30, 2008 and 2007 (Unaudited)..............................         4

     Condensed Consolidated Statements of Cash Flows
       For the Six Months Ended June 30, 2008 and 2007 (Unaudited)........................................         5

     Notes to Condensed Consolidated Financial Statements (Unaudited) ....................................         6

     Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ......         15

     Item 3. Quantitative and Qualitative Disclosure About Market Risk....................................        20

     Item 4T. Controls and Procedures...................................................................          20

PART II - OTHER INFORMATION

     Item 1. Legal Proceedings ...........................................................................        22

     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..................................        22

     Item 3. Defaults Upon Senior Securities .............................................................        22

     Item 4.  Submission of Matters to a Vote of Security Holders ........................................        22

     Item 5. Other Information ...........................................................................        22

     Item 6. Exhibits.....................................................................................        22

     Signatures ..........................................................................................        23


CERTIFICATIONS                                                                                                 Exhibits
</TABLE>
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    AS OF JUNE 30, 2008 AND DECEMBER 31, 2007
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                    June 30,           December 31,
                                                                                      2008                 2007
                                                                             --------------------- --------------------
                                                                                  (Unaudited)
ASSETS
<S>                                                                           <C>                   <C>
Current assets
  Cash and cash equivalents                                                   $           2,217    $            2,184
  Accounts receivable, net of allowance for doubtful accounts of
   $0 in 2008 and 2007                                                                    1,469                 1,486
  Prepaid expenses and other current assets                                                  85                   135
                                                                             --------------------- --------------------

       Total current assets                                                               3,771                 3,805

Property and equipment, net                                                                 418                   443
Deferred tax asset                                                                        2,867                    --
Other assets                                                                                273                   274
                                                                             --------------------- --------------------

         TOTAL ASSETS                                                         $           7,329    $            4,522
                                                                             ==================    ====================

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
  Accounts payable and accrued expenses                                       $           1,556    $            1,839
  Current portion of capital lease obligations                                               18                    36
  Current portion of notes payable                                                           54                    84
  Dividends payable                                                                       2,909                 3,336
  Deferred revenue                                                                          339                   123
                                                                             --------------------- --------------------

       Total current liabilities                                                          4,876                 5,418

Capital lease obligations, net of current portion                                             9                    14
Notes payable, net of current portion                                                       177                   135
                                                                             --------------------- --------------------

       Total liabilities                                                                  5,062                  5,567
                                                                             --------------------- --------------------

Commitments and contingencies

Shareholders' equity (deficiency)
  Preferred stock, $0.0001 par value; 2,000,000 shares authorized;
    Series A Convertible Preferred, 134,680 issued and outstanding
    in 2008 and 2007; liquidation preference of $2,750,000;
    Series B Redeemable Preferred, 974 shares issued and outstanding In                       -                     -
    2008 and 2007; liquidation preference of $974,075;
    Series C Redeemable Preferred, 2,000 shares issued and outstanding                        -                     -
    in 2008 and 2007; liquidation preference of $2,000,000;
    Series D Redeemable Preferred, 100 shares issued and outstanding
    in 2008 and 2007; liquidation preference of $100,000.
  Common stock, $0.0001 par value; 50,000,000 shares authorized;
  7,340,734 and 7,115,216 shares issued in 2008 and 2007, respectively;
  and 7,300,807 and 7,075,289 shares outstanding in 2008 and 2007,
  respectively                                                                                1                     1
  Additional paid-in capital                                                            115,345               114,961
  Accumulated deficit                                                                  (112,751)             (115,679)
                                                                             --------------------- --------------------
                                                                                          2,595                  (717)
  Common stock in treasury, at cost  - 24,371 shares                                       (328)                 (328)
                                                                             --------------------- --------------------
       Total shareholders' equity (deficiency)
                                                                                          2,267                (1,045)
                                                                             --------------------- --------------------
          TOTAL LIABILITIES AND SHAREHODERS' EQUITY
        (DEFICIENCY)                                                         $            7,329    $            4,522
                                                                             ===================== ===================
</TABLE>
See notes to condensed consolidated financial statements.                      3
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 and 2007
                      (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                  Three Months Ended                Six Months Ended
                                                                  ------------------                ----------------
                                                                       June 30,                         June 30,
                                                                       --------                         --------
                                                                 2008            2007             2008             2007
                                                            --------------- --------------- ----------------- ----------------
<S>                                                         <C>             <C>             <C>               <C>
Revenue                                                     $       2,346   $       2,580   $       4,301    $          4,834
                                                            --------------- --------------- ----------------- ----------------
Costs and expenses
  Operations, research and development                              1,007             987           1,832               1,862
  Sales and marketing                                                 209             291             419                 629
  General and administrative                                          664             568           1,450               1,061
  Depreciation and amortization                                        76              94             153                 180
                                                            --------------- --------------- ----------------- ----------------
                                                                    1,956           1,940           3,854               3,732
                                                            --------------- --------------- ----------------- ----------------

Operating income                                                      390             640             447               1,102

Other (income) expense
  Other income, net                                                    --              (8)             --                  (8)
  Interest (income) expense, net                                       (1)             31              11                  65
                                                            --------------- --------------- ----------------- ----------------

Income  before provision for income tax                               391             617             436               1,045

Benefit from (provision for) income taxes                              --              --           2,867                ( 27)
                                                            --------------- --------------- ----------------- ----------------

Net income
                                                                      391             617           3,303               1,018

Preferred stock dividends                                            (202)           (219)           (375)               (431)
                                                            --------------- --------------- ----------------- ----------------

Net income  attributable to common shareholders             $         189   $         398   $       2,928     $           587
                                                            =============== =============== ================= ================
Basic  income  per share attributable
 to common shareholders                                     $        0.03   $        0.07   $        0.40     $          0.11
                                                            =============== =============== ================= ================

Fully diluted income  per share attributable
 to common shareholders                                     $        0.02   $        0.05   $        0.28     $          0.08
                                                            =============== =============== ================= ================

Basic weighted average common shares outstanding                    7,290           5,532           7,244              5,412
                                                            =============== =============== ================= ================

Fully diluted weighted average common shares outstanding            9,473           8,200          10,874              7,675
                                                            =============== =============== ================= ================
</TABLE>
See notes to condensed consolidated financial statements.                      4

<PAGE>
                               DIRECT INSITE CORP
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                 FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                          For the six months ended
                                                                                                   June 30,
                                                                                           2008              2007
                                                                                     ----------------- ------------------
<S>                                                                                   <C>               <C>
Cash flows from operating activities
 Net income                                                                           $        3,303    $        1,018

 Adjustments to reconcile net income
  to net cash provided by operations:
    Amortization and depreciation:
      Property and equipment                                                                     152               180
    Deferred taxes                                                                            (2,867)               --
    Stock based compensation expense                                                             333                97
    Gain on sale of investment                                                                    --                (8)

  Changes in operating assets and liabilities:
    Accounts receivable                                                                           17               182
    Prepaid expenses and other current assets                                                     51                72
    Accounts payable and accrued expenses                                                       (172)              155
    Deferred revenue                                                                             216                17
                                                                                     ---------------    --------------
       Net cash provided by operations                                                         1,033             1,713
                                                                                     ---------------      ------------

Cash flows used in investing activities:
    Proceeds from sale of investment                                                              --                 8
    Expenditures for property and equipment                                                     (126)              (86)
                                                                                      ---------------    --------------
           Net cash used in investing activities                                                (126)              (78)
                                                                                     ----------------    --------------

Cash flows used in financing activities:
    Proceeds from issuance of shares on exercise of options                                       --                17
    Payment of dividends on preferred stock                                                     (802)               --
    Repayments of revolving loans, net                                                            --              (232)
    Repayment of lines of credit                                                                  --              (586)
    Principal payments on capital lease obligations                                              (22)              (39)
    Repayments of long-term debt                                                                 (50)              (31)
                                                                                      --------------    ---------------
       Net cash used in financing activities                                                    (874)             (871)
                                                                                      ---------------   ---------------

Net  increase in cash and cash equivalents                                                        33               764

Cash and cash equivalents - beginning of period                                                2,184               295
                                                                                      ---------------   ---------------

Cash and cash equivalents - end of period                                            $         2,217     $       1,059
                                                                                     ===============     =============
Supplemental Disclosures:

Cash paid for interest                                                               $            32     $          63
                                                                                     ===============     =============
Cash paid for income taxes                                                           $            30     $          14
                                                                                     ===============     =============
Non-cash investing and financing activities:
  Reduction in accrued liabilities through issuance of debt                          $            62     $          --
                                                                                     ===============     =============

  Acquisition of equipment through issuance of debt                                  $            --     $         104
                                                                                     ===============     =============
  Dividends accrued and unpaid                                                       $           375     $         431
                                                                                     ===============     =============
  Reclassification of warrant liability                                              $            --     $         602
                                                                                     ===============     =============
  Common stock issued for settlement of liability                                    $            51     $          --
                                                                                     ===============     =============
</TABLE>
See notes to condensed consolidated financial statements.                      5
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007



1.   Interim Financial Information

     The  accompanying   unaudited  condensed   consolidated  interim  financial
     statements include the accounts of Direct Insite Corp. and its subsidiaries
     ("Direct  Insite"  or  the  "Company").   All  intercompany   balances  and
     transactions   have  been  eliminated  in   consolidation.   The  condensed
     consolidated  balance  sheet  as  of  June  30,  2008,  and  the  condensed
     consolidated  statements of operations and cash flows for the three and six
     month  periods  ended June 30,  2008 and 2007,  have been  prepared  by the
     Company  and are  not  audited.  These  unaudited,  condensed  consolidated
     interim  financial   statements  have  been  prepared  in  accordance  with
     accounting  principles  generally  accepted in the United States of America
     for interim  financial  information and with the instructions to Form 10-Q.
     Accordingly,  they do not  include  all of the  information  and  footnotes
     required by accounting  principles  generally accepted in the United States
     of America ("GAAP") for complete  financial  statements.  In addition,  the
     December  31,  2007  balance  sheet  data  was  derived  from  the  audited
     consolidated  financial  statements,  but does not include all  disclosures
     required by GAAP. These interim condensed consolidated financial statements
     include all adjustments  which  management  considers  necessary for a fair
     presentation  of the financial  statements and consist of normal  recurring
     items.  The results of operations for the three and six month periods ended
     June 30,  2008,  are not  necessarily  indicative  of  results  that may be
     expected for any other interim period or for the full year.

     These unaudited condensed  consolidated financial statements should be read
     in conjunction with the audited consolidated financial statements and notes
     thereto  for the year ended  December  31, 2007  included in the  Company's
     Form-10KSB.  The  accounting  policies  used in preparing  these  unaudited
     condensed  consolidated  financial  statements  are  consistent  with those
     described  in  the  audited  December  31,  2007   consolidated   financial
     statements.

     Use of Estimates
     ----------------

     In preparing financial statements in conformity with accounting  principles
     generally  accepted  in the  United  States of  America,  management  makes
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities  and  disclosures of contingent  assets and  liabilities at the
     date of the condensed  consolidated  financial  statements,  as well as the
     reported  amounts of revenue  and  expenses  during the  reporting  period.
     Management  bases its  estimates on  historical  experience  and on various
     assumptions that are believed to be reasonable under the circumstances, the
     results  of which form the basis for making  judgments  about the  carrying
     values of assets and liabilities  that are not readily  apparent from other
     sources.  Disclosures that are particularly sensitive to estimation include
     revenue  recognition,  stock based  compensation,  valuation  allowance  on
     deferred tax assets, and management's plans, as disclosed in Note 9. Actual
     results could differ from those estimates.

2.   The Company

     Direct Insite Corp.  was organized as a public  company,  under the laws of
     the State of  Delaware on August 27,  1987.  Direct  Insite  operates as an
     application  service provider  ("ASP"),  providing best practice  financial
     supply chain automation and workflow efficiencies within the Procure-to-Pay
     (PTP) and  Order-to-Cash  (OTC) processes.  The Company's global Electronic
     Invoice Presentment and Payment ("EIP&P") services automate manual business
     processes such as complex  billing,  invoice  validation,  invoice-to-order
     matching, consolidation, dispute handling, and payment processing.

                                                                               6
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007




     Management's liquidity plans are discussed in Note 9. Also, as described in
     Note 7, the Company has two  customers  that  accounted  for  approximately
     94.3% of the Company's revenue for the six month period ended June 30, 2008
     and 96.4% of revenue for the six month period ended June 30, 2007.  Loss of
     either of these  customers  would  have a  material  adverse  effect on the
     Company.

3.   Stock Based Compensation

     Stock Options
     -------------

     The Company  accounts for stock  options  using the fair value  recognition
     provisions of Statement of Financial  Accounting Standards ("SFAS") No, 123
     (Revised 2004),  "Share-Based  Payment",  ("SFAS 123(R)"). As a result, for
     the three and six month periods ended June 30, 2008,  the Company  recorded
     $19,000 and $64,000,  respectively,  in  compensation  expense for the fair
     value of options.  For the three and six month periods ended June 30, 2007,
     the Company  recorded  $25,000 and $58,000,  respectively,  in compensation
     expense for the fair value of options.  At June 30, 2008, there was $31,000
     of total  unrecognized  compensation costs related to stock options granted
     which is  expected to be  recognized  over a weighted  average  period of 8
     months.

     Nonqualified  and  incentive  stock options have been granted to directors,
     officers and employees of the Company under our Stock Option Plans. Options
     generally  vest over 3 years and  expire  five  years  from the date of the
     grant.  At June 30, 2008,  5,754,000  shares were  authorized  for issuance
     under the stock option plans.  Awards that expire or are cancelled  without
     delivery of shares generally become available for issuance under the plans.
     The Company issues new shares to satisfy stock option exercises. During the
     six months  ended June 30, 2008 the Company  issued  75,000  options with a
     weighted  average  grant date fair  value of  $69,000.  There  were  65,000
     options  issued  during the six months  ended  June 30,  2007,  which had a
     weighted  average  grant date fair value of $20,000.  The fair value of the
     stock  options  granted  was  estimated  on the date of the grant using the
     Black-Scholes option pricing model (see Note 6).

     A summary of option  activity under the plans for the six months ended June
     30, 2008 is as follows:

<TABLE>
<CAPTION>
   ------------------------------------ ----------------- --------------------- -------------------- ----------------------
                                                                                   Weighted Average
                                                              Weighted Average       Remaining         Aggregate Intrinsic
                                               Shares          Exercise Price       Contractual              Value
                                           (in thousands)                         Term (in years)       (in thousands)
   ------------------------------------ ----------------- --------------------- -------------------- ----------------------
   <S>                                         <C>                 <C>                   <C>                 <C>
   Balance, December 31, 2007                  2,592               $0.77
   ------------------------------------ ----------------- --------------------- -------------------- ----------------------
       Granted                                    75               $1.50
   ------------------------------------ ----------------- --------------------- -------------------- ----------------------
       Exercised                                (235)              $0.95
   ------------------------------------ ----------------- --------------------- -------------------- ----------------------
       Canceled                                   --                 --
   ------------------------------------ ----------------- --------------------- -------------------- ----------------------
       Forfeited                                  --                 --
   ------------------------------------ ----------------- --------------------- -------------------- ----------------------
   Balance, June 30, 2008                      2,432              $0.77                  1.8                 $1,312
   ------------------------------------ ----------------- --------------------- -------------------- ----------------------
   Exercisable, June 30, 2008                  2,372              $0.77                  1.7                 $1,291
   ------------------------------------ ----------------- --------------------- -------------------- ----------------------
</TABLE>
     The total fair value of options vested during the six months ended June 30,
     2008  was  $64,000.  Subsequent  to June  30,  2008,  the  Company's  Chief
     Executive Officer exercised 360,000 options with an exercise price of $1.16
     per share. The unrecognized  compensation expense for non-vested options is
     $31,000 at June 30, 2008 and will be recognized over the next nine months.

                                                                               7
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007




     Restricted Stock Grants
     -----------------------

     During the six months ended June 30, 2008 the Company granted 21,858 shares
     to  directors  as part of their  compensation.  The stock grants had a fair
     value of $33,000 based on the closing price of the stock on the date of the
     grant.  The stock  grants  vest over the two year  period  January  1, 2008
     through December 31, 2009.

     A summary  of the  status of the  Company's  restricted  non-vested  shares
     issued  pursuant to employment  and service  agreements as of June 30, 2008
     and changes during the six months ended June 30, 2008 is presented below:

<TABLE>
<CAPTION>
------------------------------------------ ---------------------------------- ------------------------------------------

              Non-vested Shares                    Shares (in thousands)        Weighted-average Grant Date Fair Value
------------------------------------------ ---------------------------------- ------------------------------------------
<S>                                                       <C>                                   <C>
Non-vested at January 1, 2008                             710                                   $2.22
------------------------------------------ ---------------------------------- ------------------------------------------
Granted                                                    22                                   $1.50
------------------------------------------ ---------------------------------- ------------------------------------------
Vested                                                    (81)                                  $2.12
------------------------------------------ ---------------------------------- ------------------------------------------
Forfeited                                                  --                                      --
                                           -------------------------------------
------------------------------------------ ---------------------------------- ------------------------------------------
Non-vested at June 30, 2008                               651                                   $2.20
                                           =====================================
------------------------------------------ ---------------------------------- ------------------------------------------
</TABLE>
     For the three and six months ended June 30, 2008 stock compensation expense
     for stock grants was $134,000 and $269,000, respectively. For the three and
     six months ended June 30, 2007 stock compensation  expense for stock grants
     was $20,000 and  $40,000,  respectively.  The future  expected  expense for
     non-vested  shares is $1,272,000 and will be recognized on a  straight-line
     basis over the period July 1, 2008 through December 31, 2010.

4.   Accounts Receivable and Revolving Loans

     On May 31, 2007, the Company renewed an Accounts  Receivable Line of Credit
     with a Bank,  whereby the Company  from time to time may assign some of its
     accounts  receivable  to the Bank on a full recourse  basis.  The agreement
     expired on May 30,  2008.  At June 30,  2008 and  December  31,  2007,  the
     Company had no accounts receivable assigned to the Bank and had no advances
     from the Bank.

5.   Debt

     Notes payable
     -------------

     At June 30, 2008 and December 31, 2007,  notes payable  consist of $231,000
     and $219,000,  respectively,  of borrowings  for the purchase of equipment.
     These notes bear  interest at rates ranging from 9.0% to 10.3% per year and
     mature through January 2012. The notes are  collateralized by the equipment
     purchased  with net book values of $182,000 and $187,000,  at June 30, 2008
     and December 31, 2007, respectively.

     Capitalized lease obligations
     -----------------------------

     The Company has  equipment  under  capital  lease  obligations  expiring at
     various times through 2008. The assets and liabilities under capital leases
     are  recorded  at the  lower of the  present  values of the  minimum  lease
     payments or the fair values of the assets. The interest rates pertaining to
     these capital leases range from 10.2% to 19.2%. At June 30, 2008, the gross
     and net book value of the  related  assets is  approximately  $135,000  and

                                                                               8
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007




     $21,000,  respectively.  At December 31, 2007, the gross and net book value
     of the related assets was approximately $135,000 and $28,000, respectively.

6.   Shareholders' Equity

     The  following  table  summarizes  the  changes  in  shareholders'   equity
     (deficiency) for the six months ended June 30, 2008:
<TABLE>
<CAPTION>
                     -------------------------------------------------- --------------------
                                                                               In thousands
                     -------------------------------------------------- --------------------
                           <S>                                                  <C>
                            Balance - January 1, 2008                           $ (1,045)
                     -------------------------------------------------- --------------------
                              Dividends accrued                                     (375)
                     -------------------------------------------------- --------------------
                              Stock based compensation                               333
                     -------------------------------------------------- --------------------
                              Shares issued for settlement of
                              accrued liabilities                                     51
                     -------------------------------------------------- --------------------
                              Net income                                           3,303
                                                                                ------------
                     -------------------------------------------------- --------------------
                            Balance - June 30, 2008                             $  2,267
                     -------------------------------------------------- --------============
</TABLE>
     Common Stock and Option Issuances
     ---------------------------------

     During  the six  months  ended  June 30,  2008 the  Company  issued  52,500
     restricted  common shares with a fair value of $95,000 based on the closing
     share price on the date of the grant to certain  officers under  employment
     agreements.  The Company also issued 1,552 restricted  common shares valued
     at $3,000 to a former employee for services in 2007, and 61,431  restricted
     common  shares  with a fair  value of $47,500 to an  employee  for  accrued
     compensation in 2007. During the six months ended June 30, 2008 the Company
     also issued  110,035 common shares on the exercise of 235,000 stock options
     on a cashless basis.

     During the six months  ended  June 30,  2008,  the  Company  issued  75,000
     options to an officer and a director to purchase common stock.  The options
     have an exercise  prices of $1.50 (the  trading  price of the shares at the
     date of the  grant)  and a fair  value at the grant  date of  $69,000.  The
     valuation  was  determined  using  the   Black-Scholes   method.   The  key
     assumptions  used were a volatility  of 98.1%,  dividend rate of 0%, a risk
     free rate of 1.9% and an expected life of 3.0 years.

     During the six months  ended  June 30,  2007,  the  Company  issued  65,000
     options to employees to purchase  common  stock.  The options have exercise
     prices of $0.61 and $0.70 (the trading  prices of the shares at the date of
     the grant) and a fair value at the grant date of $19,500. The valuation was
     determined using the Black-Scholes  method. The key assumptions used were a
     volatility of 69.0% to 74.3%, dividend rate of 0%, a risk free rate of 4.9%
     and an expected life of 3.25 years.

     During the six months  ended June 30,  2007,  the  Company  issued  646,176
     shares on exercise of  warrants  and 15,000  shares on exercise of options.
     The warrant  exercise was done on a cashless  basis.  The Company  received
     proceeds of $17,000 from the option exercise.

     Subsequent  to  June  30,  2008,  the  Company's  Chief  Executive  Officer
     exercised 360,000 options with an exercise price of $1.16 per share.

                                                                               9
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007




     Earnings Per Share
     ------------------

     The Company  displays  earnings per share in accordance  with SFAS No. 128,
     "Earnings Per Share".  SFAS No. 128 requires dual presentation of basic and
     diluted  earnings per share ("EPS").  Basic EPS includes no dilution and is
     computed by dividing net income (loss)  attributable to common shareholders
     by the weighted average number of common shares outstanding for the period.
     Diluted EPS includes the potential  dilution that could occur if securities
     or other  contracts to issue common stock were  exercised or converted into
     common stock. Outstanding stock options, warrants and other potential stock
     issuances  are not included in the  computation  when their effect would be
     anti-dilutive.  The  following  table  presents  the  shares  used  in  the
     computation  of fully  diluted  earnings  per  share  for the three and six
     months ended June 30, 2008 and 2007:
<TABLE>
<CAPTION>
---------------------------------------------------- -------------------- -------------------- -------------------- ----------------
                                                        Three Months         Three Months          Six Months          Six Months
                                                           Ended                Ended                Ended                Ended
                                                        June 30, 2008        June 30, 2007        June 30, 2008        June 30, 2007
---------------------------------------------------- -------------------- -------------------- -------------------- ----------------
                                                       (in thousands)       (in thousands)       (in thousands)       (in thousands)
---------------------------------------------------- -------------------- -------------------- -------------------- ----------------
       <S>                                                       <C>                  <C>                   <C>                <C>
       Weighted Average Common shares outstanding                7,290                5,532                 7,244              5,412
---------------------------------------------------- -------------------- -------------------- -------------------- ----------------
       Warrants to purchase common stock                           902               1,247                    946             1,146
---------------------------------------------------- -------------------- -------------------- -------------------- ----------------
       Options to purchase common stock                          1,273                1,421                 1,330              1,117
---------------------------------------------------- -------------------- -------------------- -------------------- ----------------
       Stock grants                                                  8                   --                     7                 --
---------------------------------------------------- -------------------- -------------------- -------------------- ----------------
       Series A Convertible preferred stock                         --                   --                 1,347                 --
                                                               --------             --------             --------           --------
---------------------------------------------------- -------------------- -------------------- -------------------- ----------------
       Total fully diluted shares                                9,473               8,200                10,874               7,675
                                                               =======              ========             ========           ========
---------------------------------------------------- -------------------- -------------------- -------------------- ----------------
</TABLE>
     Securities that could potentially dilute basic EPS in the future, that were
     not included in the  computation  of the diluted EPS because to do so would
     have been antidilutive for the periods presented,  consist of the following
     (in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------- --------------------------------------- -------------------------------------
                                                             Three Months Ended June 30,          Six Months Ended June 30,
----------------------------------------------------- --------------------------------------- -------------------------------------
                                                                 2008             2007               2008             2007
                                                                 ----             ----               ----             ----
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       <S>                                                       <C>             <C>                 <C>             <C>
       Options to purchase common stock                            93              923                  93              923
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       Warrants to purchase common stock                          552              643                 552              643
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       Restricted stock grants                                    620               --                 620               --
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       Series A Convertible preferred stock                     1,347            1,347                  --            1,347
                                                               ------           ------               -----           ------
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------

----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
             Total potential common shares                      2,612            2,913               1,265            2,913
                                                                =====            =====               =====            =====
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
</TABLE>
7.   Products and Services

     The Company and its subsidiaries  currently operate in one business segment
     and provide two separate  products:  ASP  services  and custom  engineering
     services. The following table displays revenue by product (in thousands):

                                                                              10
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007





<TABLE>
<CAPTION>

                                       Three Months Ended June 30,      Six Months Ended June 30,
                                         2008              2007             2008           2007
                                         ----              ----             ----           ----
      <S>                               <C>              <C>              <C>            <C>
      ASP IOL fees                      $1,823           $1,895           $ 3,652        $ 3,559
      Custom engineering fees              523              685               649          1,275
                                       -------          -------           -------        -------

           Total Revenue                $2,346           $2,580           $ 4,301        $ 4,834
                                       =======          =======           =======        =======
</TABLE>
     Major Customers
     ---------------

     For the three and six month periods ended June 30, 2008,  IBM accounted for
     47.1% and 47.3% of revenue,  respectively,  compared to 48.4% and 49.2% for
     the three and six month periods ended June 30, 2007, respectively.  For the
     three and six month  periods  ended June 30, 2008,  EDS accounted for 44.4%
     and 47.0% of  revenue,  respectively,  compared  to 48.3% and 47.2% for the
     three and six month  periods  ended June 30, 2007,  respectively.  Accounts
     receivable  from these  customers  amounted to $1,292,000 and $1,416,000 at
     June 30, 2008 and December 31, 2007, respectively.

8.   Income Taxes

     In its interim  financial  statements  the Company  follows the guidance in
     Accounting   Principles   Board  ("APB")  Opinion  28  "Interim   Financial
     Reporting"  and FIN 18 "Accounting  for Income Taxes in Interim  Periods an
     Interpretation of APB 28", whereby the Company utilizes the expected annual
     effective tax rate in determining its income tax provisions for the interim
     period's  income or loss. As the Company has significant net operating loss
     carry-forwards  the  effective  income tax rate applied to the period ended
     June 30, 2008 income was 0%. The Company  accounts  for income  taxes using
     the liability  method.  The liability method requires the  determination of
     deferred tax assets and liabilities  based on the  differences  between the
     financial  statement and income tax basis of assets and liabilities,  using
     enacted tax rates. Additionally,  net deferred tax assets are adjusted by a
     valuation  allowance if, based on the weight of available  evidence,  it is
     more  likely  than not that some  portion  or all of the net  deferred  tax
     assets will not be realized. The Company currently has significant deferred
     tax assets consisting  predominately of net operating loss  carry-forwards.
     SFAS No.  109,  "Accounting  for  Income  Taxes  ("FAS  109"),  requires  a
     valuation allowance be established when it is more likely than not that all
     or a portion of deferred  tax assets will not be  realized.  During the six
     months  ended June 30, 2008,  the Company  reviewed  previous  positive and
     negative  evidence and also reviewed its expected taxable income for future
     periods and  concluded  that it is more likely than not that  approximately
     $2,867,000  of tax benefits  related to net operating  loss  carry-forwards
     will be utilized in future tax years and, therefore,  reduced its valuation
     allowance  during the six months ended June 30, 2008 in accordance with APB
     28.  As a result  the  Company's  effective  tax rate for the three and six
     months  ended June 30, 2008 differs from the current  statutory  rates.  In
     addition,  the  Company  expects to provide a  valuation  allowance  on the
     remaining future tax benefits until it can sustain a level of profitability
     that  demonstrates  its ability to utilize the remaining  assets,  or other
     significant  positive  evidence arises that suggests its ability to utilize
     the remaining assets.  The future  realization of a portion of its reserved
     deferred tax assets related to tax benefits associated with the exercise of
     stock options,  if and when  realized,  will not result in a tax benefit in

                                                                              11
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007





     the  consolidated  statement  of  operations,  but rather will result in an
     increase in  additional  paid in  capital.  The  Company  will  continue to
     re-assess its reserves on deferred income tax assets in future periods on a
     quarterly  basis.  The Company has elected the "with and without  approach"
     regarding  ordering  of windfall  tax  benefits  to  determine  whether the
     windfall tax benefit did reduce taxes  payable in the current  year.  Under
     this  approach the windfall tax benefit  would be  recognized in additional
     paid-in-capital  only if an  incremental  tax  benefit  is  realized  after
     considering all other benefits presently available.

     At December 31, 2007,  the Company had federal and state net operating loss
     carryforwards  ("NOLs")  remaining  of  approximately  $77  million and $33
     million, respectively,  which may be available to reduce taxable income, if
     any. These NOLs expire through 2025.

9.   Management's Liquidity Plans

     In  order  to meet  the  Company's  cash  needs  and to  maintain  positive
     operating  cash flows the  Company has and will  continue  to take  various
     actions and steps that the Company  believes will enable it to attain these
     goals. These actions include:

     o    For the six months ended June 30, 2008 and the year ended December 31,
          2007 the Company had net cash provided by operations of $1,033,000 and
          $3,255,000,  respectively.  The Company  will  continue to monitor and
          control  expenses  and  anticipates  that it will  continue to achieve
          positive cash flows from operations.

     o    The Company  continues to strive to increase  revenue through offering
          custom engineering services,  expanding and enhancing existing product
          offerings such as IOL, and introducing new product  offerings.  In the
          year ended  December 31, 2007 the Company signed  agreements  with two
          new customers to provide IOL  services.  Management  anticipates  that
          revenue  from new  customers  will  continue  to  increase in 2008 and
          beyond and  expects  to further  broaden  the  customer  base in 2008,
          although  there  is no  assurance  that  the  Company  will be able to
          further broaden its customer base.

     o    Based on the advice of legal counsel,  management believes the Company
          may only pay  dividends  to the  extent  it has a surplus  or  current
          earnings pursuant to the Delaware General  Corporation Law. During the
          six months  ended June 30,  2008,  the Company  paid  dividends on the
          Series B  Preferred  Stock of  $802,000  and  expects  to pay  further
          dividends in 2008.

     Management believes that these plans and new initiatives as discussed above
     will lead to continued  positive  cash flows and  profitability.  While the
     Company  pursues  these goals the Company also believes that its ability to
     generate  positive cash flows from operations will provide  sufficient cash
     to meet cash  requirements at least through June 30, 2009.  There can be no
     assurance,  however,  that the  Company  will  achieve  the  cash  flow and
     profitability  goals, or that it will be able to raise  additional  capital
     sufficient  to meet  operating  expenses or  implement  its plans.  In such
     event,  the Company may have to revise its plans and  significantly  reduce
     its operating  expenses,  which could have an adverse effect on revenue and
     operations in the short term.

10.  New Accounting Pronouncements

     In  September  2006,  the FASB issued  Statement  of  Financial  Accounting
     Standards  ("SFAS") No. 157, "Fair Value  Measurements"  ("SFAS 157"). SFAS
     157  clarifies  the  principle  that  fair  value  should  be  based on the
     assumptions  market  participants  would  use  when  pricing  an  asset  or
     liability  and  establishes a fair value  hierarchy  that  prioritizes  the
     information used to develop those assumptions. SFAS 157 requires fair value
     measurements  to be  separately  disclosed  by level  within the fair value
     hierarchy. SFAS 157 is effective for financial statements issued for fiscal
     years  beginning  after November 15, 2007, and interim periods within those
     fiscal  years.  On February 12, 2008,  the FASB issued FASB Staff  Position

                                                                              12
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007





     (FSP) No. SFAS 157-2,  "Effective Date of FASB Statement No. 157" (FSP SFAS
     157-2).  FSP SFAS 157-2 amends SFAS No. 157, to delay the effective date of
     SFAS 157 for nonfinancial assets and nonfinancial  liabilities,  except for
     the items that are  recognized  or disclosed at fair value in the financial
     statements on a recurring basis. For items within its scope, FSP SFAS 157-2
     defers  the  effective  date of SFAS 157 to fiscal  years  beginning  after
     November  15,  2008.  The  Company is  currently  evaluating  the impact of
     adopting  SFAS  157  and  FSP  SFAS  157-2  on our  consolidated  financial
     statements.

     In February  2007,  the FASB issued SFAS No. 159 "The Fair Value Option for
     Financial Assets and Financial Liabilities - Including an amendment of FASB
     Statement  No. 115" ("SFAS No. 159"),  which permits  entities to choose to
     measure many financial  instruments  and certain other items at fair value.
     The fair value option established by this Statement permits all entities to
     choose to measure eligible items at fair value at specified election dates.
     A business  entity  shall report  unrealized  gains and losses on items for
     which the fair value option has been elected in earnings at each subsequent
     reporting  date.  Adoption is required  for fiscal  years  beginning  after
     November 15, 2007. The Company has not elected to use the fair value method
     for any financial assets or liabilities and therefore SFAS 159 did not have
     an effect on the Company's financial position or results of operations.

     In  December  2007,  the FASB  issued  Statement  of  Financial  Accounting
     Standards ("SFAS") No. 141R,  "Business  Combinations" ("SFAS 141R"), which
     replaces  SFAS No.  141,  "Business  Combinations."  SFAS 141R  establishes
     principles and  requirements  for determining how an enterprise  recognizes
     and measures the fair value of certain assets and liabilities acquired in a
     business  combination,   including  non-controlling  interests,  contingent
     consideration, and certain acquired contingencies.  SFAS 141R also requires
     acquisition-related   transaction   expenses  and  restructuring  costs  be
     expensed as incurred rather than capitalized as a component of the business
     combination.  SFAS  141R  will  be  applicable  prospectively  to  business
     combinations for which the acquisition date is on or after the beginning of
     the first annual  reporting period beginning on or after December 15, 2008.
     SFAS 141R would have an impact on accounting  for any  businesses  acquired
     after the effective date of this pronouncement.

     In December 2007, the FASB issued SFAS No. 160, "Non-controlling  Interests
     in Consolidated  Financial  Statements - An Amendment of ARB No. 51" ("SFAS
     160").  SFAS 160  establishes  accounting  and reporting  standards for the
     non-controlling  interest  in  a  subsidiary  (previously  referred  to  as
     minority interests). SFAS 160 also requires that a retained non-controlling
     interest upon the  deconsolidation of a subsidiary be initially measured at
     its fair value. Upon adoption of SFAS 160, the Company would be required to
     report  any   non-controlling   interests   as  a  separate   component  of
     stockholders' equity. The Company would also be required to present any net
     income allocable to non-controlling  interests and net income  attributable
     to  the  stockholders  of  the  Company   separately  in  its  consolidated
     statements  of  operations.  SFAS 160 is effective  for fiscal  years,  and
     interim  periods within those fiscal years,  beginning on or after December
     15, 2008. SFAS 160 requires  retroactive  adoption of the  presentation and
     disclosure   requirements  for  existing  minority  interests.   All  other
     requirements  of SFAS 160 shall be  applied  prospectively.  SFAS 160 would
     have an impact on the  presentation  and disclosure of the  non-controlling
     interests of any non wholly-owned businesses acquired in the future.

     In March  2008,  the FASB issued SFAS 161,  "Disclosures  about  Derivative
     Instruments and Hedging Activities an amendment of FASB Statement No. 133",
     which amends and expands the disclosure requirements of SFAS 133 to require
     qualitative   disclosure   about   objectives   and  strategies  for  using
     derivatives, quantitative disclosures about fair value amounts of and gains

                                                                              13
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007





     and   losses   on   derivative    instruments,    and   disclosures   about
     credit-risk-related  contingent  features in  derivative  agreements.  This
     statement  will be effective for the Company  beginning on January 1, 2009.
     The  adoption  of this  statement  will change the  disclosures  related to
     derivative instruments held by the Company, if any.


                                                                              14
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES




Item 2 - Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Forward looking statements

All statements  other than  statements of historical  fact included in this Form
10-Q including,  without limitation,  statements under, "Management's Discussion
and Analysis of Financial  Condition  and Results of  Operations"  regarding the
Company's financial position,  business strategy and the plans and objectives of
management for future operations, are forward-looking  statements.  When used in
this Form 10-Q, words such as  "anticipate,"  "believe,"  "estimate,"  "expect,"
"intend"  and  similar  expressions,  as  they  relate  to  the  Company  or its
management, identify forward-looking statements. Such forward-looking statements
are based on the  beliefs of  management,  as well as  assumptions  made by, and
information  currently  available to, the Company's  management.  Actual results
could  differ  materially  from  those   contemplated  by  the   forward-looking
statements  as a  result  of  certain  factors  including  but not  limited  to,
fluctuations in future operating results, technological changes or difficulties,
management  of future  growth,  the risk of errors or failures in the  Company's
software products,  dependence on proprietary  technology,  competitive factors,
risks associated with potential acquisitions,  the ability to recruit personnel,
the  dependence  on key  personnel,  and such other risk factors which may arise
from time to time  including,  but not limited to, the risk factors as set forth
in the  Company's  Reports on Form 10KSB as filed with the  Securities  Exchange
Commission. Such statements reflect the current views of management with respect
to future  events and are subject to these and other  risks,  uncertainties  and
assumptions relating to the operations,  results of operations,  growth strategy
and liquidity of the Company.  All subsequent  written and oral  forward-looking
statements  attributable  to the  Company  or  persons  acting on its behalf are
expressly qualified in their entirety by this paragraph.

Overview

Direct Insite Corp. and its  subsidiaries  (hereinafter  referred to at times as
"Direct Insite" or the "Company"),  was organized as a public company, under the
laws of the State of Delaware on August 27, 1987.  Direct Insite  operates as an
application  service provider ("ASP"),  providing best practice financial supply
chain automation and workflow  efficiencies within the Procure-to-Pay  (PTP) and
Order-to-Cash   (OTC)  processes.   The  Company's  global  Electronic   Invoice
Presentment and Payment ("EIP&P")  services  automate manual business  processes
such  as  complex  billing,  invoice  validation,   invoice-to-order   matching,
consolidation, dispute handling, and payment processing.

Direct  Insite is currently  delivering  service and  business  value across the
Americas,  Europe, and Asia,  including 62 countries,  15 languages and multiple
currencies. Direct Insite processes, hosts and distributes millions of invoices,
purchase orders, and attachment  documents making them accessible on-line within
an internet self service portal. Suppliers,  customers, and internal departments
such as Finance  and  Accounting  or  Customer  Service  users can access  their
business documents 24 hours per day, seven days per week, 365 days per year.

For the three and six month periods ended June 30, 2008, IBM accounted for 47.1%
and 47.3% of  revenue,  respectively,  compared to 48.4% and 49.2% for the three
and six month periods ended June 30, 2007,  respectively.  For the three and six
month periods ended June 30, 2008, EDS accounted for 44.4% and 47.0% of revenue,
respectively,  compared  to 48.3% and 47.2% for the three and six month  periods
ended June 30, 2007, respectively.

Critical accounting policies

Our condensed  consolidated  financial  statements and the notes thereto contain
information  that is pertinent to  management's  discussion  and  analysis.  The
preparation of financial  statements in conformity  with  accounting  principles
generally  accepted in the United States  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and

                                                                              15
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES




disclosures of contingent assets and liabilities. Management bases its estimates
on historical  experience and on various other  assumptions that are believed to
be reasonable under the  circumstances,  the results of which form the basis for
making  judgments about the carrying  values of assets and liabilities  that are
not readily  apparent  from other  sources.  On a continuing  basis,  management
reviews its estimates  utilizing  currently  available  information,  changes in
facts and circumstances, historical experience and reasonable assumptions. After
such  reviews,   and  if  deemed  appropriate,   those  estimates  are  adjusted
accordingly.  Actual results may vary from these estimates and assumptions under
different  and/or  future  circumstances.  Management  considers  an  accounting
estimate to be critical if:

          o    it requires  assumptions  to be made that were  uncertain  at the
               time the estimate was made; and

          o    changes  in the  estimate,  or the  use of  different  estimating
               methods  that  could  have been  selected,  could have a material
               impact  on  the  Company's  condensed   consolidated  results  of
               operations or financial condition.

The following critical  accounting policies have been identified that affect the
more  significant  judgments  and  estimates  used  in  the  preparation  of the
consolidated financial statements. We believe that the following are some of the
more critical judgment areas in the application of our accounting  policies that
affect our financial condition and results of operations.  We have discussed the
application of these critical accounting policies with our Audit Committee.  The
following  critical  accounting  policies are not intended to be a comprehensive
list of all of the Company's accounting policies or estimates.

Revenue Recognition
-------------------

We record revenue in accordance  with Statement of Position 81-1,  issued by the
American  Institute of Certified  Public  Accountants  and SEC Staff  Accounting
Bulletin  Topic  13  "Revenue  Recognition  in  Financial  Statements."  In some
circumstances,  we enter into  arrangements  whereby the Company is obligated to
deliver  to  its  customer   multiple   products   and/or   services   (multiple
deliverables).  In these  transactions,  in accordance  with the Emerging Issues
Task  Force  ("EITF")  Issue No.  00-21,  "Revenue  Arrangements  with  Multiple
Deliverables",  the Company  allocates  the total revenue to be earned among the
various  elements  based on their relative fair values.  The Company  recognizes
revenue related to the delivered products or services only if:

o Any undelivered products or services are not essential to the functionality of
the delivered products or services;

o Payment for the delivered products or services is not contingent upon delivery
of the remaining products or services;

o We have an enforceable  claim to receive the amount due in the event we do not
deliver the undelivered products or services and it is probable that such amount
is collectible;

o There is  evidence of the fair value for each of the  undelivered  products or
services;

o Delivery of the delivered  element  represents the culmination of the earnings
process.

     The following are the specific revenue recognition  policies for each major
category of revenue.

                                                                              16
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES




ASP Services
------------

We provide  transactional  data  processing  services  through our ASP  software
solutions to our  customers.  The customer is charged a monthly  fixed rate on a
per  transaction  basis or a fixed fee  based on  monthly  transaction  volumes.
Revenue is recognized as the services are performed.

Custom Engineering Services
---------------------------

We perform custom engineering  services which are single contractual  agreements
involving  modification  or  customization  of  the  Company's  proprietary  ASP
software  solution.  Progress  is  measured  using the  relative  fair  value of
specifically identifiable output measures (milestones). Revenue is recognized at
the lesser of the milestone  amount when the customer accepts such milestones or
the percentage of completion of the contract following the guidance of SOP 81-1,
"Accounting for  Performance of  Construction-Type  and Certain  Production Type
Contracts."

Cost of Revenue
---------------

Cost of  revenue in the  condensed  consolidated  statements  of  operations  is
presented along with operations, research and development costs and exclusive of
amortization and depreciation  shown  separately.  Custom  Engineering  Services
costs  related to  uncompleted  milestones  are  deferred  and included in other
current assets, when applicable.

Allowance For Doubtful Accounts
-------------------------------

The  allowance  for doubtful  accounts  reflects  management's  best estimate of
probable  losses  inherent  in  the  account  receivable   balance.   Management
determines  the  allowance   based  on  known  troubled   accounts,   historical
experience,  and  other  currently  available  evidence.  At June  30,  2008 and
December 31, 2007, an allowance for doubtful  accounts is not provided since, in
the opinion of management, all accounts are deemed collectible.

Impairment of Long-Lived Assets
-------------------------------

Statement of Financial  Accounting  Standards ("SFAS"),  No. 144 "Accounting for
the Impairment or Disposal of Long-Lived Assets" ("FAS 144") requires management
judgments  regarding the future  operating and disposition  plans for marginally
performing assets, and estimates of expected  realizable values for assets to be
sold. The Company accounts for its long-lived  assets in accordance with FAS 144
for purposes of  determining  and measuring  impairment of its other  intangible
assets. It is the Company's policy to periodically  review the value assigned to
its long lived assets,  including  capitalized  software  costs, to determine if
they have been  permanently  impaired by adverse  conditions.  If  required,  an
impairment  charge would be recorded  based on an estimate of future  discounted
cash flows. In order to test for recoverability, the Company compared the sum of
an undiscounted  cash flow projection from the related  long-lived assets to the
net  carrying  amount  of  such  assets.  Considerable  management  judgment  is
necessary to estimate  undiscounted  future operating cash flows and fair values
and,  accordingly,  actual results could vary significantly from such estimates.
No impairment  charges were recognized during the six months ended June 30, 2008
and 2007, respectively.

Income Taxes
------------

We currently have significant deferred tax assets. SFAS No. 109, "Accounting for
Income Taxes"("FAS 109"),  requires a valuation allowance be established when it
is more likely than not that all or a portion of deferred tax assets will not be
realized.  Furthermore, FAS 109 provides that it is difficult to conclude that a
valuation  allowance  is not needed  when  there is  negative  evidence  such as
cumulative losses in recent years. Therefore, cumulative losses weigh heavily in
the overall  assessment.  The future  realization  of a portion of our  reserved
deferred  tax assets  related to tax  benefits  associated  with the exercise of
stock  options,  if and when  realized,  will not result in a tax benefit in the
consolidated  statement of operations,  but rather will result in an increase in

                                                                              17
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES




additional  paid in capital.  We will  continue  to  re-assess  our  reserves on
deferred income tax assets in future periods on a quarterly basis (see note 8 to
the Condensed Consolidated Financial Statements).

Use of Estimates
----------------

In preparing  financial  statements in  conformity  with  accounting  principles
generally  accepted  in the  United  States of  America,  our  management  makes
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities and disclosures of contingent  assets and liabilities at the date of
the  consolidated  financial  statements,  as well as the  reported  amounts  of
revenue and expenses during the reporting period.  Certain items,  among others,
that are  particularly  sensitive to estimates  are revenue  recognition,  stock
based  compensation and the valuation  allowance on deferred tax assets.  Actual
results could differ from those estimates.

Results of operations

For the three and six month  periods  ended  June 30,  2008 we had  income  from
operations  of  $390,000  and  $447,000,  respectively,  compared to income from
operations of $640,000 and  $1,102,000 for the three and six month periods ended
June 30, 2007,  respectively.  We had net income of $391,000 and  $3,303,000 for
the three and six months  ended June 30,  2008,  respectively,  compared  to net
income of $617,000  and  $1,018,000  for the three and six months ended June 30,
2007,  respectively.  During the six months ended June 30,  2008,  we recorded a
benefit from income taxes of  $2,867,000  as a result of reducing the  valuation
allowance on our deferred tax assets for net operating  loss  carry-forwards  we
more likely than not expect to utilize in future years.

For the  three and six month  periods  ended  June 30,  2008  revenue  decreased
$234,000 (9.1%) to $2,346,000 and $533,000 (11.0%) to $4,301,000,  respectively,
compared to revenue of  $2,580,000  and  $4,834,000  for the three and six month
periods ended June 30, 2007, respectively. This decrease is primarily the result
of a decrease in engineering  services  revenue of $161,000 (23.5%) and $626,000
(49.1%)  for the three and six months  ended June 30,  2008,  respectively.  The
decrease in the engineering  services revenue is due to a decrease in the number
and size of  projects  in process  during the first six months of 2008.  Revenue
from our recurring ASP IOL services decreased $72,000 for the three months ended
June 30,  2008 and  increased  $93,000  for the six months  ended June 30,  2008
compared  to the same  period  in 2007.  We  anticipate  that  revenue  from new
projects will increase  during the remainder of 2008 as we begin new initiatives
with existing customers and as we expand our customer base.

Costs of  operations,  research and  development  increased by $20,000 (2.0%) to
$1,007,000  for the  three  months  ended  June 30,  2008  compared  to costs of
$987,000 for the three months ended June 30, 2007. For the six months ended June
30, 2008 these costs decreased $30,000 (1.6%) compared to costs of $1,862,000 in
the same period in 2007. These costs consist principally of salaries and related
expenses  for  software  developers,   programmers,  custom  engineers,  network
services,  and quality  control and assurance.  Also included are network costs,
costs of the production co-location facility and other expenses directly related
to our custom engineering and ASP production services. The increase in costs for
the  three  months  ended  June 30,  2008 is  principally  due to  increases  in
personnel  wages and benefit costs of $52,000 and an increase in rent of $24,000
offset by decreases in professional  fees of $45,000 and other costs of $31,000.
The  decrease  in costs  for the six  months  ended  June  30,  2008 is due to a
decrease in professional  fees of $87,000 offset by increases in rent of $61,000
and other costs of $26,000.

Sales and marketing  costs  decreased  $82,000  (28.2%) to $209,000 and $210,000
(33.4%)  to  $419,000  for the  three  and  six  months  ended  June  30,  2008,
respectively,  compared to costs of $291,000  and $629,000 for the three and six
months ended June 30, 2007,  respectively.  Personnel and related  benefit costs
decreased $64,000 and $109,000 for the three and six months ended June 30, 2008,
respectively, as a result of staff reductions.  Professional and consulting fees
also  decreased  by $36,000 and $66,000 for the three and six months  ended June
30, 2008,  respectively.  Other sales and marketing costs increased  $18,000 for

                                                                              18
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES




the three  months ended June 30, 2008 and  decreased  $35,000 for the six months
ended June 30, 2008.

General and administrative  costs increased $96,000 (16.9%) and $389,000 (36.7%)
to $664,000  and  $1,450,000  for the three and six months  ended June 30, 2008,
respectively,  compared to costs of $568,000 and $1,061,000 for the same periods
in 2007. The increase is principally  due to an increase in salaries and related
benefit costs  including stock  compensation  costs of $166,000 and $355,000 for
the three and six months ended June 30, 2008.  Legal fees decreased  $40,000 and
$49,000  for the three and six months  ended June 30,  2008,  respectively.  All
other administrative costs decreased $30,000 for the three months ended June 30,
2008.  For the six months  ended June 30,  2008 travel and  entertainment  costs
increased  $40,000 while all other general and  administrative  costs  increased
$43,000.

During the three months ended June 30, 2008 we had interest income net of $1,000
compared to interest expense net of $31,000 for the same period in 2007. For the
six months  ended June 30, 2008  interest  expense  net was $11,000  compared to
$65,000  for the same  period in 2007.  The  improvement  was due to a return on
investment of excess cash and lower borrowing in 2008 compared to 2007.

Financial Condition and Liquidity

Cash provided by operating activities for the six months ended June 30, 2008 was
$1,033,000  compared to cash provided by operating  activities of $1,713,000 for
the six months ended June 30, 2007.  This consisted of net income of $3,303,000,
increased  by  non-cash  expenses  of  $485,000,   including   depreciation  and
amortization of property and equipment of $152,000, and stock-based compensation
expense  of  $333,000,  offset  by the  change  in the  deferred  tax  asset  of
$2,867,000.  This was further  offset by an increase in accounts  receivable  of
$17,000 and prepaid  expenses of $51,000 and a decrease in accounts  payable and
accrued expenses of $172,000. Deferred revenue increased by $216,000.

Cash used in investing activities was $126,000 for the six months ended June 30,
2008,  compared  to  $78,000  for  same  period  in 2007.  This was  principally
expenditures for equipment.

Cash used in financing activities totaled $874,000 for the six months ended June
30, 2008, compared to cash used in financing activities of $871,000 for the six
months ended June 30, 2007. We paid $802,000 in dividends on preferred stock and
repaid $72,000 of long-term debt and capital lease obligations in the first six
months of 2008.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have, or are reasonably likely to
have,  a current or future  effect on our  financial  condition,  changes in our
financial  condition,  revenues or expenses,  results of operations,  liquidity,
capital expenditures or capital resources that are material to investors.

Management's Liquidity and Financing Plans

In order to meet our cash  requirements and to achieve  positive  operating cash
flows we have and will  continue  to take  various  actions  and  steps  that we
believe will enable us to attain these goals. These actions include:


          o    For the six  months  ended  June  30,  2008  and the  year  ended
               December  31,  2007 we had net cash  provided  by  operations  of
               $1,033,000  and  $3,255,000,  respectively.  We will  continue to
               monitor  and  control  expenses  and we  anticipate  that we will
               continue to achieve positive cash flows from operations.

                                                                              19
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES




          o    We continue to strive to increase revenue through offering custom
               engineering  services,  expanding and enhancing  existing product
               offerings such as IOL, and introducing new product offerings.  In
               the year ended  December 31, 2007 we signed  agreements  with two
               new customers to provide IOL services. We anticipate that revenue
               from new  customers  will continue to increase in 2008 and beyond
               and we expect  to  further  broaden  our  customer  base in 2008,
               although  there is no  assurance  that we will be able to further
               broaden our customer base.

          o    Based on the advice of legal counsel,  we believe the Company may
               only pay  dividends  to the  extent it has a surplus  or  current
               earnings  pursuant to Delaware General  Corporate Law. During the
               six months ended June 30, 2008, we paid dividends on the Series B
               Preferred  Stock  of  $802,000  and  we  expect  to  pay  further
               dividends in 2008.

     We believe that these plans and new  initiatives  as  discussed  above will
     lead to continued  positive cash flows and  profitability.  While we pursue
     these goals we also  believe  that our ability to  generate  positive  cash
     flows  from  operations  will  provide  sufficient  cash to meet  our  cash
     requirements  at least  through June 30, 2009.  There can be no  assurance,
     however, we will achieve the cash flow and profitability  goals, or that we
     will be able to  raise  additional  capital  sufficient  to meet  operating
     expenses or implement its plans.  In such event,  we may have to revise our
     plans and  significantly  reduce  operating  expenses,  which could have an
     adverse effect on revenue and operations in the short term.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

     Not applicable

Item 4T.  Controls and Procedures

     Evaluation of Disclosure Controls and Procedures
     -------------------------------------------------

     The Company maintains disclosure controls and procedures designed to ensure
     that information  required to be disclosed in the reports it files with the
     SEC is accumulated and communicated to management, as appropriate, to allow
     timely decisions  regarding  required  disclosure,  and such information is
     recorded,  processed,  summarized  and  reported  within  the time  periods
     specified in the SEC's rules and forms.  Under the supervision and with the
     participation of our management,  including our Chief Executive Officer and
     Chief  Financial  Officer,  we  have  evaluated  the  effectiveness  of our
     disclosure  controls  and  procedures  as such term is defined by the rules
     established under the Securities Exchange Act of 1934.

     Based  on our  evaluation  which  took  place  as of  June  30,  2008  (the
     "Evaluation  Date"), we believe that these procedures were not effective as
     a result  of  limited  resources  and a  limited  segregation  of duties in
     accounting and financial  reporting.  More specifically,  the Company has a
     limited  number  of  personnel  in the  finance  and  accounting  area  and
     therefore one person performs various accounting  functions where a greater
     segregation  of duties  would  permit  checks and balances and reviews that
     would improve internal control. The Company has been aware of this material
     weakness  since  January  2004 at which  time the  staff of the  accounting
     department was reduced.  As a result the Chief  Financial  Officer  devotes
     substantive time to reviewing the accounting  records and financial reports
     and the Company expects that this will continue until  financial  resources
     permit engaging additional accounting staff. The Company has not determined
     at this time when such additional staff will be employed.

                                                                              20
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES




     Changes in Internal Control Over Financial Reporting
     ----------------------------------------------------

     The Company  maintains a system of  internal  controls  designed to provide
     reasonable  assurance  that  transactions  are executed in accordance  with
     management's general or specific  authorization;  transactions are recorded
     as  necessary  to  (1)  permit  preparation  of  financial   statements  in
     conformity  with  accounting  principles  generally  accepted in the United
     States of America,  and (2) maintain  accountability for assets.  Access to
     assets  is  permitted  only in  accordance  with  management's  general  or
     specific  authorization.  In 2007 the Company  adopted and  implemented the
     control  requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the
     "Act").

     There  was no change  in the  Company's  internal  control  over  financial
     reporting  during the  Company's  last fiscal  quarter that has  materially
     affected,  or is  reasonably  likely to  materially  affect,  the Company's
     internal control over financial reporting.

     It is the  responsibility  of the  Company's  management  to establish  and
     maintain adequate internal control over financial  reporting.  However, due
     to its limited financial  resources,  there is only limited  segregation of
     duties within the accounting function,  leaving most significant aspects of
     financial reporting in the hands of the CFO.

     Our  independent  auditors have reported to our Board of Directors  certain
     matters  involving   internal   controls  that  our  independent   auditors
     considered to be a reportable  condition and a material  weakness as of the
     Evaluation Date, under standards  established by the American  Institute of
     Certified  Public   Accountants.   As  previously  stated,  the  reportable
     condition and material  weakness  relates to limited  segregation of duties
     and the absence of reviews and approvals beyond that performed by the Chief
     Financial  Officer as  mentioned  above,  of  transactions  and  accounting
     entries.  Given this reportable condition and material weakness,  the Chief
     Financial  Officer  devoted  additional  time  to  closing,  preparing  and
     reviewing the report for the six months ended June 30, 2008.

                                                                              21
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

                           PART II - OTHER INFORMATION





Item 1. Legal Proceedings

     None

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     None

Item 3. Defaults Upon Senior Securities

     None

Item 4. Submission of Matters to a Vote of Security Holders

     None

Item 5. Other Information

     None

Item 6. Exhibits


          31   Certifications pursuant to Rules 13a-14(a) as adopted pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002.

          32   Certifications  pursuant  to 18 U.S.C.  Section  1350 as  adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


                                                                              22
<PAGE>


                      DIRECT INSITE CORP. AND SUBSIDIARIES

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.




DIRECT INSITE CORP.




/s/  James A. Cannavino
------------------------------------------------------
James A. Cannavino, Chief Executive Officer                August 13, 2008



/s/ Michael J. Beecher
------------------------------------------------------
Michael J. Beecher,  Chief Financial Officer               August 13, 2008

                                                                              23